Frito Lays Case Study
Jack Executive Summary Frito Lay Inc. Is known as a worldwide leader in the snack manufacturing and marketing company of snack chips.
Accounting for 13 percent of sales In the United States snack Industry, It has a vast manufacturing Infrastructure consisting of 45 manufacturing plants In 26 different states. It currently represents for 54% of retail sales in snack chip industry among the united States. The company is a division of Pepsico. Inc. And has a recorded operating income of 1.
0 Lion dollars on net sales of 9.68 billion standing for about 60% of PepsiCo operating profit. Some of the popular brands it houses are Lays, Ruffles, Auditors, Dittos, Chests, Sun Chips, Funny’s. But during the sass’s, a majority of the growth Frito Lay experienced was attributed from Its low-fat, no-fat, “better for you” snacks referring to their baked chips Like Baked Lays and Baked Dittos. The department of Frito Lays, New Venues Division, is responsible for further growth for the company and searches for existing products that can turn a profit.
The company has been debating on whether to arches the rights to Cracker Jack from Borden Foods Corporation. The Cracker Jack brand has had difficulties in selling in the market because Borden Foods Corporation main focus Is In the pasta business and grain meals. This seizes as a good opportunity for Frito Lay Inc. To buy off the brand under the findings of the business to outline a plan as to how Cracker Jack can be salvaged. Such possible action can be taken because of Frito Lay’s outstanding capital.
After consolidating the business outline of the product and determining its fair market value, the more suitable alternative to take would be the third alternative. Due to the fact that Cracker Jack Is not an entirely terrible product and still has a strong foundation, Frito Lay can build upon this even further. Utilizing Frito Lays existing reputation and operations, the company can turn Cracker Jack around by reinventing its outlook towards consumers. With the appropriate brand marketing, the growth of Cracker Jack can become prosperous.
Problem Definition Frito Lay faces a difficult decision of investing large amounts of company’s resources to increase the company’s market share and sales revenue. Frito Lays had to decide whether to Invest company’s resources into expanding and improving existing reduce line the company already owns/produce or expand the company by aqualung a related food company offering a different product. Frito Lay has considered acquiring Cracker Jack from Borden Foods Corporation to expanding their company.
However, Frito Lay has to carefully access all of the risk in investing in Cracker Jack. Borden Food’s Cracker Jacks is one of few large brands in the popcorn category that faces high competition within the industry.
In 1996, the dollar sales market share of Cracker Jack was 26%, while their largest competitors, International Home Foods NC’n a a AT ten market sales. I en ready to eat caramel popcorn industry was viewed an “under marketed” industry compared to microwaves popcorn and other snacks.
Crunch’n Munch have dominated in the ready to eat caramel popcorn industry because the company invest millions dollars in advertisement every year to build their product brand, while Cracker Jack have been decreasing their advertisement budget every year from 1993-1997. Cracker Jack also has a higher price for their ready to eat caramel popcorn compare to their competitors. “Cracker Jacks prices have risen by an average of 5 to 6 percent per years since 1993.
From 1993 to 1996, Cracker Jack recorded a negative direct product contribution due to management decision to focus on introducing a family-size package that were 7-8 once bags while reducing emphasis on the smaller box packages of their other products. The family-size package increased the sales of Cracker Jack, however, “their margin percentage suffer due to a smaller margin contribution on large packages, which cannibalized higher margin small packages.” The company continued to see financial loss as production cost increased while prices of their product remained unchanged.
In the early 1997, Cracker Jack created a new strategy to increase revenues by “expanding distribution within retail snack and food service marketing channels, developing new packaging and flavor, impact product positioning, enhanced gross margins from sustained price leadership and additional resources being allotted to consumer advertising. ” The company made significant changes in the Cracker Jack product by changing the price and size per quantity while increasing sales by expanding through a variety of different vendors. The company simulated a test market for their new product in 16 U.
S. Cities and after a 3 month trial, the test market for Cracker Jack received many positive reviews. As a result of the simulated test market, Cracker Jack market projections saw an increase in net trade sales every year from 1997 to 2001.
Analysis of Alternatives
The first alternative suggests one growth avenue that consist of opportunities from building Frito Lay through expanding it into new eating occasions for current or new products. This issue focuses on improving the products through intensive research and development in order to increase the quality fit for consumer benefits.
This is an advantage because it is cheaper to improve an existing product than introducing a new one. And because the company is already established, it can use its current distribution channels to distribute the improved products, allowing for more efforts to be used to introduce and market the products itself. Under the circumstance that Frito Lay is considered to be the leaders in US in terms of creative advertising and execution, they can allocate their experience in marketing the product towards the right direction and will overall increase the frequency of sales.
The disadvantage to focusing on research and development on this product is that competitors may limit opportunity through improving similar products therefore interfering with sales performance. The second growth alternative is the potential to successfully enter new product categories through capitalizing on Frito Lays store door delivery sales force strengths, broad distribution coverage, and brand marketing skills.
The advantage of this issue Is Tanat It Decodes a new opportunity Tort ten company to launch new products sun as candies, baked sweet pastries, single serve cakes, or snack bars.
The company can truly benefit from providing customers with a wider variety of products and get a better understanding of which product markets are not profitable. The disadvantages of taking this second route is that it requires a lot of research and development which will influence the overall net income. Compared to the first growth alternative, launching any new product will be more costly than improving an existing one let alone it would require new distribution channels in order to reach out to specific customers.
The third growth alternative was made possible by related food companies offering products or whole businesses for sales which is referred to as opportunistic acquisition. These opportunities would be screened and analyzed whether deemed fit for Frito Lay Inc.
There are many advantages in acquiring these propositions, Cracker Jack being one of the most recognized consumer food brands, has established a name within the market and virtually enables the ability to extend to different product lines. Purchasing this acquisition, can produce additional market share through focusing on targeting new potential consumers.
Since both Cracker Jack and Frito Lay have fitting sales and distribution channels, they can save resources and allocate more efforts into hunting for new customers. The only negative aspect in taking this purchase is that it is very risky and requires a high investment cost especially on the pretenses of Cracker Jacks poor financial position in the previous years. Plan Development Frito Lay has three choices to expand its company and further develop its growth.
Its first choice was to expand its existing snack business by exploring new eating occasions for current or new products.
Second, was to enter new product category by epitomizing on its existing strengths. And third, refers to opportunistic acquisition where Frito Lay would purchase related food companies of specific brands or entire businesses. Frito Lay has already dominated the snack industry with its strong brand name, sales and distribution channels, and advertisement skills therefore the first option would require a lot of money and creative ideas to understand their consumers at such an intimate level. Option two would be risky because entering a new product category can be difficult, since there are well established competitors within those categories.
After reviewing the issues, it is evident that option three would be best suited for Frito Lays growth to maintain its title as the leader in the US market concerning market share and sales volume in the snacking industry. That being said, Frito Lay has already established a strong distribution channel and strong marketing experience from their current products, endorsing a new product such as Cracker Jack will be an efficient transition. Although the acquisition of a new brand or company could be challenging, it would definitely give Frito Lay a better opportunity in entering a new product category.